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Willisms

« Trivia Tidbit Of The Day: Part 197 -- Oil Profits. | WILLisms.com | Social Security Reform Thursday: Week Thirty-Eight -- Disability Benefits. »

Trivia Tidbit Of The Day: Part 198 -- Oil Industry Profits.

Oil Industry Profits-

It's earnings season at the NYSE.

Today ExxonMobil announced record profits, which has renewed called for "excess profits" taxes on oil and gas companies.

This morning, ExxonMobil took out this advertisement (.pdf) in a newspapers to put the profits into a bit of contest:

This week, ExxonMobil’s earnings are in the news. But is there more to the story than the headlines?

Our earnings are indeed at a record high, driven largely by the price of the commodities we sell. But if you compare profits per dollar of revenue across a wide range of U.S. companies — a true "apples to apples" evaluation — you see that oil earnings are not out of step with other major industries.

As the chart shows, oil and gas industry earnings averaged 7.7 cents per dollar of revenue during the second quarter compared with the overall U.S. industry average of 7.9 cents. ExxonMobil earned 8.6 cents for every dollar of revenue.

The total earnings numbers in the news reflect not just performance but also the company’s significant scale and global scope. For example, ExxonMobil’s investment of $106 billion in property, plant and equipment alone exceeds the GDP of many of the countries of the world.

These earnings, over two thirds of which stem from non-U.S. businesses, enable us to take on the challenge of meeting the world’s vast and growing energy needs. Last year alone, our new capital investments approached $15 billion, primarily in new exploration and production, but also in refining capacity and new energy-saving and environmental technologies.

While earnings rise and fall with oil prices, our investments do not. That $15 billion was invested in a year when the oil price averaged
just below $40 and earnings were high. But we also invested $15 billion in 1998, when oil dipped to $10 a barrel and annual earnings — at $8 billion — were far lower. In fact, averaged over the last ten years our annual capital investments for the future of the company exceed our earnings.

Ours is a capital-intensive business where investments can take many years to develop. A thoughtful, long-term approach to investment
— regardless of the volatility in prices and earnings — ensures the apple tree continues to bear fruit in the best and worst of times.

Included was this graph (.pdf):

averageindustryearnings.gif

And yet, Marxist Democrats like Senator Cantwell of Washington, Senator Reed of Rhode Island and Senator Dorgan of North Dakota want to punish the oil companies for their success. Words like "profiteering" and "price gouging" are thrown around, willy-nilly.

What exactly is the difference between profiting and profiteering, anyway? The type of industry in which one is involved?

Want to place blame for "high" oil prices?

Look no further than the government, itself:

Environmental regulations, backed by activists who mix demonstrations and lawsuits, create delays and inflate costs.

One Arizona project begun a decade ago is still at least five years away from completion.

Over the last 10 years the industry has invested $47 billion to comply with new environmental controls rather than construct new capacity, according to the American Petroleum Institute. Compliance with sulfur standards alone cost about $20 billion.

Although the recent energy bill included provisions intended to spur refinery construction, it added a new ethanol mandate - a political payoff to agricultural interests - which will force expensive technical adaptations at refineries. Air pollution rules require different gasoline formulations for "nonattainment" areas, reducing economies of scale.

While consumers target gas stations with their ire, the bulk of recent price hikes have gone to refiners. In contrast, distributors, marketers, and retailers receive just a penny more than in 2004.

Even today, prices at the pump are constrained by local competition. If gas stations could charge as much as they desired, they would have been doing so already.

Government also pushes up prices through taxes, which average 42 cents a gallon nationally. In Hawaii, where the state government has imposed price controls, the combined state and federal tax is more than 50 cents.

It boggles my mind that so many communists are still allowed into the halls of Congress.


-------------------------------------

Previous Trivia Tidbit: Oil Taxes & Profits.

Posted by Will Franklin · 27 October 2005 03:58 PM

Comments

Those senators you mentioned aren't Marxists, they just pander to them. If they were Marxists they'd be against anyone making a profit and would be the first ones to call for subsidies or outright government takeover of any industry making high profits OR suffering losses. The constituents they pander to lack the intelligence to understand that, and those senators prefer it that way. Contrary to the claims by those on the left, it's a whole lot easier to sell a total line of BS to the "reality based" left than it is to the right. So easy that most of us on the right can't but help but laugh when the left refers to itself as a "reality based". If they were able to comprehend the truth they'd switch sides and refer to their former comrades as the "envy and hate driven left", like we do. Reality doesn't figure into their ideology, dishonesty does.

Posted by: bullwinkle at October 27, 2005 05:15 PM

Listening to them on CNBC today talk about this stuff in some depth, joining with the Naderites, it was difficult not to call them Marxists. I mean, it was just ridiculous.

Posted by: Will Franklin at October 27, 2005 05:24 PM

That was an awfully good statement by ExxonMobil.

Sometimes you really do have to wonder how some of the people at CNBC got their jobs. I would not trust an investment portfolio with any one of them except Kudlow or Cramer.

Posted by: Tom Blumer at October 27, 2005 05:54 PM

One of the things that constantly gets lost in the arguments made by the anti-oil lobby is that many of the oil and gas companies have been engaged in share buybacks in recent years, and especially in the last year.

What does this mean? Right now, the energy companies are seeing their earnings (profits) per share go up, which the anti-oil lobby points to as evidence of "gouging".

What's really going on is a little bit of profit increase from higher oil and gas prices, and a lot of decrease in the number of shares of these companies' stock. As a result, the EPS numbers are overstating the real profit picture for these companies.

You might want to play with the earnings data from the second quarter of the year in a dynamic table format, and FWIW, the Exxon-Mobil people need to give a major hat tip to Tom Tanton at the The Commons for originating the chart.

Posted by: Ironman at October 27, 2005 06:24 PM

Thanks, Ironman... good stuff.

Posted by: Will Franklin at October 27, 2005 06:35 PM

Very timely!

Comunists in Congress? My Goodness! Besides Bernie (Dean will support him) Sanders, the rest all try to be like chameleons, there to eat you alive, but not noticed until it's too late!

Posted by: DL at October 28, 2005 08:00 AM

Why is it that people gripe so much about the price of oil, yet they will go out and buy a cup of coffee for $7 to $10 ??? A couple of bottles of shampoo can be more than what we pay for a barrel of oil?

Posted by: Zsa Zsa at October 28, 2005 10:50 AM

The oil industry creates jobs and supports alot of people! Not to mention we rely on it to get us around! I think that oil and gas prices are actually artificially low compared to the demand!

Posted by: Zsa Zsa at October 28, 2005 10:58 AM